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Post-Employment Benefits Forum

In April, when UC and its employees are scheduled to resume paying into the pension plan (UCRP), it will be the first time in 20 years that contributions have been made.

Yet projections show that even with the slow ramp up of the re-start of contributions, UC’s future liability for pensions and retiree health care benefits outstrips the influx of new money. And the problem gets worse over time.

“That liability will continue to grow unless we take action,” said Dwaine Duckett, Vice President for Human Resources at a meeting with UCOP retirees and staff to talk about the issue.

Established by President Yudof earlier this year, the Post-Employment Benefits Task Force is visiting all UC locations this fall to talk with faculty, staff and retirees about the financial picture and to seek input on possible changes to the current policies and programs.

They also want members of the University community to know that the Task Force’s mission is to ensure that when employees retire, their pension benefits will be there.

“We can say definitively that pension benefits that current employees already have accrued cannot be touched,” said Gary Schlimgen, UCOP’s director of pension & retirement programs policy. “Current retirees have already completely earned and accrued their pension benefits. And of course, they will not be asked to contribute to UCRP.”

The Task Force’s mission is to preserve UC’s competitive benefits – which have been an important tool for recruiting and retaining faculty and staff – while ensuring that post-employment benefits for current and future retirees become financially sustainable.

The Task Force will make its recommendations to the President sometime next summer.

To that end, the local forums are aimed at asking members of the University community about their issues, concerns and questions to learn more about how different constituencies could be affected

As it now stands, UC will begin paying 4 percent of payroll into UCRP next spring, while most employees will have the 2 percent of their pay currently going into the Defined Contribution Plan redirected to UCRP.  As a result, employees will see no reduction in net take-home pay during the first 15 months of contributions.  Contributions from union-represented employees are subject to collective bargaining.

UC expects to follow a long-term approach that is consistent with CalPERS, the retirement program for state employees, in which the state and workers share in the cost of funding retiree benefits.  Currently, for most state employees the employer contribution rate is 16.9 percent and the employee contribution rate is 5 percent. These contribution rates apply to CSU faculty and staff who are members of CalPERS. Under the CalPERS model, UC (from all funding sources) and its employees may ultimately pay something like 12% and 5% respectively toward the cost of funding UCRP benefits. To just meet the annual growth in liability for active members earning an additional year of service, UC and its employees would need to funnel about 17 percent of annual pay into the UCRP. Plan liabilities grow by this “Normal Cost” of $1.3 billion a year, every year.

“Significant funding is needed, and it’s going to affect everyone – from the campuses and departments to individuals,” Schlimgen said.

The retiree health program is an area of particular concern for the Post-Employment Benefits Task Force. Unlike the UCRP, the retiree health program has no assets – UC meets its obligations each year with money from operating revenue.

UC’s pay as you go cash costs for the retiree health program are projected to increase from $225 million per year in 2010 to $416 million per year by 2013.

The overall liability is an unsustainable rate of growth that could eventually affect UC’s good credit rating and impact its operating budgets and ability to borrow, Schlimgen said. As a result the premiums paid by retirees will likely go up.

Beginning in 2010, UC is changing its average contribution for retiree health care premiums to more closely align with its contribution for active employees. UC has been paying roughly 92 percent of health care premiums for retirees and 88 percent for active employees. In 2010, UC’s contribution for retiree health care premiums will average 89 percent, and UC will be paying $25 million more in calendar year 2010 vs. 2009

“As with active employees, premiums are increasing largely to due to health care cost inflation,” Schlimgen said.

Although it won’t solve the entire problem, one of the clear goals already on the table is to press California lawmakers to begin shouldering some of UC’s  pension costs.  UC leaders will ask the state for $96 million in the coming fiscal year for UCRP.

California helps fund the pension benefits for employees  in the California State University system and for the California Community College system, but gives nothing to UC.  Partly that’s an outgrowth of the fact that for so long, UCRP had more than enough money to meet its obligations

In 2001, UCRP was funded at 149 percent.  Today, that figure is less than 100 percent. By 2013, even with the restart of contributions, the funded status is estimated at just 61 percent unless funding is made at a higher level.

Clearly, it’s time for Sacramento to treat UC the same way it treats CSU and the Community College System, Schlimgen said.

“The state continues to support the defined benefit plans of Cal State and community college employees. We need them to step up to the plate and help support UCRP.”

For more on the Post-Employment Retirement Benefits Task Force, and the schedule for upcoming Local Forum, go to:

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